In this article, we analyze the growth in new disabled-worker entitlements from 1970 through 2008. The number of newly entitled workers has increased along with the working-age population because more women worked and became insured for disability, and the baby boom generation moved into disability-prone ages. We decompose this incidence growth into the part attributable to those factors and a residual part attributable to factors like program changes or business cycle fluctuations.

We find that the three factors — (1) population growth, (2) growth in the proportion of women insured for disability, and (3) movement of the large baby boom generation into disability-prone ages — explain 90 percent of the growth in new disabled-worker entitlements over the 36-year subperiod (1972–2008) and 94 percent of the growth over the second half of that period (1990–2008). Comparing the earlier period to the later, a seeming speedup in disability incidence in 1990–2008 relative to 1972–1990 disappears once we account for the changing demographic structure.

Monday, November 18, 2013

The Washington Post’s editors weigh in against legislation from Sen. Tom Harkin and Rep. Linda Sanchez that would increase social security benefits and COLAs, funded by eliminating the Social Security “tax max”:

The fiscal predicament facing the U.S. government is a double one: how to bring taxes and spending into rough long-term balance while ending the squeeze on non-entitlement spending enshrined in current law. It’s not an easy task. It won’t get any easier if progressives define progressivism as opposition to budgetary realism.

Gene Steurle and Caleb Quackenbush of the Urban Institute have updated their figures showing the lifetime Social Security and Medicare taxes people pay, based on when they’re born, and the lifetime benefits they can expect to receive.

There’s an interesting pattern here: for early cohorts, say the 1960 cohort shown on the left, the real money was in Social Security: you paid a little Social Security taxes and received a load of benefits. Medicare was a bonus: people at that time paid next to no Medicare taxes, but the lifetime benefits weren’t all that much.

Today, it’s a different story. Social Security has turned the corner, both through higher taxes and relatively lower benefits (through the retirement age increase), meaning that a typical person retiring today will pay more in Social Security taxes than they’ll receive back in benefits.

So we’ve saved the budget, right? Wrong. Medicare has grown so much in terms of cost/generosity that a typical person retiring today will receive around $260,000 more in Medicare benefits than they paid in taxes.

Where’s the money going to come from to pay for that? Well, that’s the question…

Wednesday, November 13, 2013

Caleb Quakenbush, Karen E. Smith and Eugene Steuerle of the Urban Institute have an interesting new study looking at how Social Security redistributes according to race, a topic which has long generated controversy in policy circles. But the authors take a new angle on things: looking not only at how Social Security taxes and benefits are distributed within a single birth cohort, but also across time. For instance, Social Security was far more generous to earlier birth cohorts (who tend to be more predominantly white) and less generous to later ones (who have greater numbers of minorities). As a result, the program may be redistributing from these younger, less-white generations to older, ‘whiter’ generations.

In any case, here’s the abstract:

This brief considers how Social Security’s many benefit and tax features have redistributed across groups over time. Using Current Population Survey data from 1970 through 1994 and microsimulation projections from the Urban Institute’s DYNASIM3 model, we find that for many decades, Social Security redistributed from blacks, Hispanics, and other people of color, to whites. These transfers will likely to continue in future decades. Our findings suggest that future reforms that place the burden of Social Security reform solely on younger, more diverse generations may have undesired distributional consequences if the aim of the program is to provide greater relative protections to more vulnerable groups.

There is a tremendous amount of policy interest in the potential use of the chained CPI-U for cost of living adjustments to various social programs, including social security. This statistical / survey methodology talk is intended to provide the audience with a thorough background on and understanding of the building blocks of the CPI-U, the CPI-W, the chained CPI-U as well as the much discussed experimental CPI for the elderly (CPI-E). How social security payments are adjusted using the CPI-W is presented as well as how social security payments would have varied in the past using alternative indexes for cost-of-living adjustments. Finally, the challenge of constructing a production ready non-experimental CPI for a demographic group such as the elderly is discussed.

Reservations are open through Wednesday, 11-13-13

Press: Please email :info@national-economists.orgwith your attendance status and the date of attendance. It will be assumed that lunch is NOT requested. If lunch is requested, please contact me in advance, prior to the date of the event, for registration and payment instructions at the member rate.

Credit Card payment is non refundable but you may substitute someone in your place for attendance.

The Center for Retirement Research at Boston College announces the 2014 Dissertation Fellowship Program for research on retirement income and policy issues, funded by the U.S. Social Security Administration.

The Dissertation Fellowships support doctoral candidates writing dissertations on retirement income and policy issues. The program is open to scholars in all academic disciplines.

Up to two fellowships of $28,000 will be awarded.

The submission deadline for proposals is Friday, February 14, 2014. Award recipients will be announced by April 2014.

Economists’ standard model assumes that improvements in total factor productivity (TFP) raise the marginal product of labor for all workers evenly. This paper uses an earnings dynamics regression model to study whether, in practice, older workers benefit less from TFP growth than younger workers. We utilize panel earnings data from the Social Security Administration’s Continuous Work History Sample. The data include workers of all ages, and we use annual figures for 1950-2004. Our first specification relies on BLS measurements of TFP. Our second model develops a new TFP measure using a principal components analysis. We find that although the earnings of younger workers track TFP growth 1-for-1, the earnings of older workers do not: we find, for example, that a 60-year-old male’s earnings grow only 85-90% as fast as TFP. Nevertheless, our analysis implies that in an economy with an aging labor force, gains from experience tend to outweigh older workers’ inability to benefit fully from TFP improvements.

Key Findings:

• We develop an earnings dynamics model that shows how technological progress affects workers’ earnings at different ages.

• Analyzing earnings data from 1950-2004, we find that earnings of younger workers rise commensurately with increases in productivity, whereas, earnings of 60-year old workers grow only about 90% as fast as overall technological progress.

• However, we find that earnings growth from accumulating experience for older workers more than compensates for declines in ability to benefit from improvements in technology.

• Although increases in longevity presumably encourage workers to consider longer careers, declines in earning power likely have the opposite effect, especially during eras of rapid technological change.

Friday, November 1, 2013

The Bush Center’s Ike Brannon blogs against the idea that, to fix entitlements, all we need is a little more economic growth. In reality, he says, growth is good but not nearly enough. Check it out here.

The NCPA’s Daily Policy Digest reports on a new paper by the Cato Institutes Jagadeesh Gokhale, titled “Generalized Benefit Offset: A Fix for Social Security Disability Insurance.”

October 1, 2013

The Social Security Disability Insurance (SSDI) program is rapidly approaching insolvency. According to the Social Security Trustees, the program's trust fund will be exhausted some time in early 2016, forcing a reduction in financial support for individuals with a disability. Although many lawmakers in Congress appreciate this problem, most of them appear unwilling to propose reforms to the program, says Jagadeesh Gokhale, a senior fellow with the Cato Institute and a member of the Social Security Advisory Board.

One explanation for this inaction is the availability of an easy short-term fix: temporarily transferring funds from SSDI's larger companion trust fund, the Social Security Old Age and Survivors Insurance (OASI) program. According to the Trustees, the OASI trust fund will not be exhausted until 2034.

Another explanation for congressional inaction is that the two major political parties are so far apart on how to reform SSDI that there is little chance of developing a workable coalition.

Gokhale proposes a different approach to providing work incentives to SSDI beneficiaries, one that involves benefit offsets but provides greater flexibility to beneficiaries in selecting their level of work activity. The Generalized Benefit Offset (GBO) program that Gokhale proposes would eliminate the cash cliff (the loss of benefits and valuable health care coverage), but it conditions the change on observed earnings. GBO allows reversion to beneficiary status when labor force attachments cease, at the full discretion of SSDI beneficiaries.

Under GBO, one would expect beneficiaries to sort themselves according to their work abilities along the GBO schedule rather than park at the Substantial Gainful Activity earnings level.

The distribution of resulting work and earning choices by SSDI beneficiaries would generate direct benefits to the economy and to SSDI beneficiaries themselves.

GBO should receive broad support from disability advocates, policy practitioners, and (most importantly) lawmakers from both sides of the aisle because it combines key elements that their constituents are demanding: better support for individuals with disabilities but also opportunities to work whenever their health impairments permit market participation.

GBO eliminates the cash cliff and would, if adopted, introduce stronger and more effective work incentives for work-capable beneficiaries while retaining SSDI insurance for individuals with disabilities.

About me

I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.